Saving for retirement

With their unique tax relief savings boost, varied investment options and flexible ways to take your income, pensions are the still the smart way to save for retirement.

Why pensions work

When you’re used to a certain standard of living, the state pension alone may not be enough. That’s why it pays to start a pension as soon as you can. The LFS Personal Pension Plan offers government tax relief, stock market investing and tax-free cash when you retire.

Start saving now

The sooner you start saving in to a pension, the more time you’ll have to build up a pot of money to use when you retire. But even if you haven’t started saving yet, it’s not too late to get started.

This is because, as you save in to your pension, not only should your savings accumulate as you invest more money, but any growth in your investments will also grow. This can make a big difference to your pension savings over time, however it is important to note that there is no guarantee that fund values will grow and you could get back less than you invest.

Get a tax relief boost

As an incentive to save for your retirement, the government gives you tax relief on the money you pay in to your pension (subject to certain limits) even if you don’t pay tax. This tax relief is added to your savings to help boost your pension savings at no extra cost to you. And if you pay higher rate tax or additional rate tax you can reclaim the extra tax relief from HMRC.

How it works

Don’t just save, invest

Pensions are a long-term investment. This means you typically invest for more than five years and in many cases for significantly longer than this. So, rather than leave your money in a bank account where it will only accumulate interest, you can instruct your pension provider to invest your money in stocks and shares.

Over the years, the aim is to grow your pension savings by adding money regularly, but also by increasing the value of your investments.

How it works

Tax-free cash at retirement

You can take up to 25% of your pension savings as tax-free cash any time after you reach age 55.

Your remaining savings will be taxed as income when you take them out of your pension. And with the new pension freedoms you now have more choice about how you take your savings. Find out about your choices at retirement.

Sarah is 60 and wants to take her tax-free cash to pay off her mortgage. She works and pays basic rate tax.

How it works

Greg is 60 and wants to take tax-free cash from his pension. As he is over 55 he can take up to 25% of his pension savings tax-free. He has not yet retired, so doesn’t need to take an income until he retires at 65. When he decides to take more money from his pension, it will be taxed at his usual income tax rate.

Pension pot value

£80,000

25% tax-free cash

£20,000

Remaining pension pot

£60,000

Create a lasting legacy

You can pass on your pension to your beneficiaries tax-free if you die before you reach the age of 75. This can be taken as a lump sum or an income.

If you die after the age of 75 you can still pass on your pension, but it will be taxed at the recipient's marginal rate.

Save for your grandchildren

Pensions can also be a tax-efficient way of saving for your grandchildren’s future. Children can receive tax relief on pension payments as long as they total no more than £3,600 a year and anyone can make these payments. This means that parents and grandparents can create a fund outside of their estate for the benefit of their children and grandchildren, so reducing their inheritance tax liability.

Latest

The underlying investment fund into which the fund invests, the Janus Henderson Money Market Unit Trust, is closing and will be replaced by the LGIM Sterling Liquidity Plus Fund (which is managed by Legal and General Investment Management Limited). In addition, the LF Money Markets Pension Fund will be renamed “LF Cash Pension Fund”.

The underlying investment fund into which the fund invests is the Janus Henderson Money Market Unit Trust. This Fund is closing on 14th January. The LGIM Sterling Lquidity Plus Fund has been identified as a replacement. This is managed by Legal and General Investment Managers Limited

The impending pension changes could raise client expectations beyond realistic levels, David Hughes, managing director of JFM, has warned. Mr Hughes, managing director of the pension investment management firm, said the reforms, which come into force on 6 April, could create fresh challenges for advisers because of client attitudes.

As we move into an era of greater pension freedom, the general public will have more choice and control over how they access the money they have saved for retirement. It will become more important than ever for advisers to help their clients to understand the risks associated with depleting their retirement savings too soon.

I have believed for some time that greater flexibility and simplicity are needed in the pensions market. The government’s changes are certainly a step in the right direction. Savers should have the freedom to choose how to access their money.

A specialist pension asset manager has become the latest to set to exploit a carve-out in the new pensions freedoms that will allow retirees to maintain an annual allowance four times higher than under new drawdown rules if they are already in ‘capped’ drawdown prior to next April.

We’re here to answer all your questions and help you understand the greater choice and responsibility that comes with the new pensions flexibility.
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